ENGG 209 Chapter Notes - Chapter 9: Mansfield, Cash Flow, The Thirteen Chairs
12 Dec 2016
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*in all cases, federal income tax on first 500,000 is 10. 5% Capital gains (profits on buying and selling of assets) are 50% taxable (this does not mean the tax rate is 50%) Tax treatment of revenues (r) and cash expenses (e) t = effective tax rate. Net income = (1 t)(r e) Let: p = initial cost, s = salvage value, ud = u at disposal (book value, h = disposal tax effect. If s < ud: h = t(ud s) > 0, additional tax has been paid, so there is a tax saving. If s = ud: h = 0, appropriate tax has been paid, so there is no tax effect. If p > s > ud: h = t(ud s) < 0, not enough tax has been paid, so there is a tax increase known as recapture. If s > p > ud: there is recapture tax and a capital gains tax, h = 0. 5t(p s)+ t(ud p)
